Thursday 10 March 2011

Great shot

Libya's main oil terminal was in flames on Wednesday night after Muammer Gaddafi's airforce bombed the complex, in an escalation that pushed the cost of the benchmark Brent above $115 a barrel
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Libyan oil wasn't the only thing destroyed by Ghaddafi's planes. The Bank of England's inflation forecasts also took a direct hit.

6 comments:

AgainsTTheWall said...

Ok Ill just say it one more time then Ill leave you in peace. Price rise due to demand-supply fluctuations is not inflation.

Jim said...

@ATTW: yes if you're being anal, inflation is an increase in the money supply, not a particular price. But given that a) the money supply increases pretty much every year anyway, and b) oil price rises flow through to everything else, then I think the man in the street might not be incorrect in looking at the price of petrol hitting £1-50/litre as inflation.

Umbongo said...

Forgive me for possibly being a mite simplistic here but, were the BoE to increase MLR, the likely outcome would be a strengthening of the £ against, among other currencies, the US$. Since the oil price is denominated in US$ the price of oil in £s would come down thus curbing the "inflationary" effect of the bombing of Libyan oil facilities.

Anonymous said...

Alice the forecasts are a joke.To create inflation is the target.

AgainsTTheWall said...

@Jim. I appreciate that oil rises affect pretty much everything else but if the cause of the price rise is a reduction in the supply of oil then the cure will be an increase in the suppy of oil. If it is due to an increase in demand from Asia then...well tough. Will raising interest rates correct either of these?

Continuing this point and @Umbongo the value of sterling (or any currency) is governed by supply and demand also. The demand should be underpinned by the productiveness of the area's economy and the supply managed by a competent authority (something we have nt had for decades if ever). Tinkering with interest rates to conjure up demand is a false and dangerous path ultimately damaging to the national economy which in the final analysis provides real value to the currency. In any case price increases due to a fall in the value of currency is a one off and the effects will disappear from the CPI after 12 months(unless the slide continues of course).

Since 2008 private borrowing\bank lending has greatly declined which has meant much less money being created. This is confirmed by the constant whining that banks should be lending more. However govt borrowing is now out of control (with no real will to tackle it) and here is the money creating/inflationary pressure within the economy at present. Rather than raise interest rates (which hurts all mortgagees and will lead to more taxation as govt interest repayments rise) the best solution would be to balance the budget. Our political class cannot do this because 1) ideologically they are incapable of partly or wholly dismantling the welfare state and removing govt intereference from the lives of the citizenry 2) EU and home grown legislation prevent many cuts being made 3) immigration costs a fortune (way in excess of the few billion occasionally admitted too by the liberal-left)and that cannot be halted now politically and legally.

Anonymous said...

A great shot indeed ,but be careful on getting what you wish for.
But , war propaganda says Gaddafi gets the blame just like Saddam got the blame for destroying iraqs oil fields!

but perhaps its true in Libya as there is no longer a point in selling the stuff when the West just seizes the countries past incomes savings and assets as war booty.
and the West are coming to get it cheaper by regime change or by dividing the country along tribalist lines.
it pretty tough when a Third World dictator cannot trust his british bankers to mind the loot.
The UK finance sector with all its British dependents will have to find a new source of income if the third world elite , the Saudis ,the sultans and the tinpot dictators of the world from Nigeria to Libya feel that they no longer can trust their bankers or safely invest in a stately home or two in Britain or in investments supporting the U.K property bubble.

How will the British still live in the style they are accustomed to and pay higher petrol prices to boot?
Print the "profits"?

Austerity with an a proper stiff upper lip while endlessly whining about the cost of bailouts for banksters and wars seems likely for a long time to come .